JP Morgan's head of research, Paul Brunker, has revealed the investment bank's top five stocks for 2014.
According to the Australian Financial Review (AFR), the main theme Mr Brunker has adopted is a view that the Australia dollar is likely to fall next year as domestic growth fades, and a couple of stocks were picked to offer exposure to a pickup in developed world growth.
Currently, the US and Europe appear to be growing, albeit slowly, but that could gather momentum with ongoing stimulus measures in the US.
Additionally, Mr Brunker says that the investment bank is concerned that there is a lack of credible earnings growth among the big-cap sectors. The major banks have seen low credit growth over the past couple of years and that could continue. Our major resources companies are likely to struggle growing earnings, especially if the iron ore price falls, as many analysts are predicting.
On that basis, JP Morgan has picked Resmed (ASX: RMD), Brambles (ASX: BXB), Sims Metal Management (ASX: SGM), Coca-Cola Amatil (ASX: CCL) and Crown Resorts (ASX: CWN) as its stocks for 2014.
Resmed, Brambles and Sims would benefit from the Australian dollar falling substantially, as they generate a fair proportion of revenues offshore. Coca-Cola Amatil was picked because JP Morgan believes concerns over the company have been overdone, and Crown offers growth from emerging markets through its Asian casino joint venture, Melco Crown Entertainment.
Some of the stocks will likely do well if the Australian dollar falls and developed countries' economies pick up, but Sims Metal is not what we would regard as investment grade. In the past two years, Sims has reported a combined loss of close to $1 billion, despite revenues of over $16 billion. Additionally the company hasn't generated a return on equity above 7% since 2008, and has a total shareholder return of just 4.3% over the past 10 years. Cash in the bank would've beaten that and for far less risk.
Foolish takeaway
It will be interesting to see how these stocks perform in 2014, and we may have to revisit this article in early 2015 to see how they went.
